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THIS is a time of great chaos, which is evident in the widely differing views of investment gurus.
I suppose if I'm going to pick a guru to follow, it would be Warren Buffett.
For one thing, he gave away a substantial portion of his fortune while he was still alive, showing that money for him was really just about keeping score.
Also, he is simply sensible. As we can see from recent times, an ounce of common sense is probably worth more than a pound of brilliance.
In terms of managing his conflicts of interest in public, Warren Buffett also appears to have a pretty sound code of conduct.
When asked what he thinks the average Americans should do in the current tough time, he recently told a CNBC interviewer that they should, as far as possible, avoid credit card debt. This from the man who owns American Express.
But it's important that gurus should be regarded as guides, not gods - particularly when choosing to praise or bury them.
A very fashionable line of attack in recent years has been to demonise Alan Greenspan.
Common sense gone for a walk
The fact of the matter is that in 1987, his first year in the job, he was confronted with a market crash. His response was appropriate and he staved off the kind of mess that we have subsequently become encumbered with.
The problem for Greenspan came in later years, when he persisted with easy monetary policy in 2003. He also deferred excessively to laissez-faire.
We can also demonise the brilliant mathematician David X Li, who derived the formula sets that allowed many of the subprime lenders to get themselves into such a pretty pickle. But once again, the problem was that many of his followers didn't really understand it. Furthermore, the excessive adoption of his methods resulted in the annihilation of the benefit of the work.
It is perhaps fortunate that common sense will always remain in short supply, at least for Buffett - because it will guarantee that he and his followers will continue to prosper.
Rather than being an epochal event, I have a growing feeling that this crisis was the result of a bungled policy response to a reasonably normal, albeit large, crash which will become epochal because of the pinch it will exert on people.
I think what we have just witnessed is 1987 - on steroids.
Inflation beaters
The response of OECD market participants basically shows that good times have made them go soft. Unlike we worthy (hem-hem) emerging types, it's been a long time since they had something really meaty to think about.
Game theory tells us optimising markets works better than laissez-faire. Anyway, the market framework also has to give a nod to society - after all, it requires its cooperation to uphold the laws that even Ayn Rand's framework needs to function.
I have some last words from an astute local manager. "If you allow nothing other than upward drift in equity premium and recognise that indices are nominal, with the US on the cusp of massive inflation I think equity prices in a year or two's time will be materially higher than here. Just wait for the inflation - you don't beat it with bonds or cash. Or hedge funds."
Absolutely. Remember that the US has a vast asset base - you could estimate it at anywhere between $50 trillion to $80 trillion depending on your source - far in excess of its debts. However, since its debt market is frozen, the debt must move from private good to public good, which is the net outcome that the Fed seeks.
Will inflation come? Oh, yes.
The winners in a time of inflation are gold, property, commodities and to some degree equities.
Bonds and cash would be total losers. Indeed; shorting treasuries is the easiest hedge against inflation - moreover, you know the Fed is buying in size. This will end.
The worry on all these asset classes would be the fear of subsequent rate hikes to start corralling inflation. We are in for a very tricky few years. Will I make a call on where the market is going? Hell, no! Buffett wouldn't!
In one of my next columns I'll share some of his really great pearls of wisdom. That is something I'd like to do before work commitments force me to bring this column to a close at the end of April.
*Lucas is an industrials and quants analyst at Imara SP Reid. Bona fide questions may be mailed to: warwickl at ispr.co.za
- Fin24.com
